Mackinac Financial Corporation announces solid results in 2013
MANISTIQUE – Mackinac Financial Corporation, the holding Corporation for mBank, today announced net income of $5.629 million or $1.01 per share, for the year ended Dec. 31, 2013, compared to net income of $6.458 million, or $1.51 per share, for 2012. The 2013 and 2012 consolidated and bank results include a deferred tax valuation adjustment of $2.250 million, or $.40 per share and $3.000 million, $.70 per share, respectively. The Corporation’s primary asset, mBank, recorded net income of $7.189 million for the fiscal year 2013 compared to $7.884 million for 2012. Excluding the aforementioned deferred tax asset, the Bank subsidiary’s core operations improved year over year from 2012 earnings of $4.884 million to $4.939 million in 2013.
Total assets of the corporation at 2013 yearend totaled $572.800 million, an increase of 4.91 percent from the $545.980 million at 2012 year-end. The corporation and the Bank are both “well-capitalized” with Tier 1 Capital at the corporation of 10.30 percent and 10.00 percent at the Bank.
Some highlights from 2013 include:
• New loan production of $190.9 million, with balance sheet growth of $34.7 million, an increase of 7.7 percent, in loans outstanding from 2012 year end.
• Secondary mortgage loan income of $1.028 million.
• Continued success with the sale of SBA and USDA loan guarantees with sales generating $.951 million for the year and a good pipeline of pending transactions at 2013 year-end.
• Stable and above peer average net interest margin at 4.17 percent for the year.
• Asset quality improved with further reductions in nonperforming assets from $7.899 at 2012 year end to $3.908 million at year-end 2013 with our Texas Ratio now residing at 5.59 percent.
• Consolidation of our owner occupied branch and mortgage offices in Marquette, to a new leased facility in December of 2013.
• Redemption of $11.000 million of preferred stock.
• Increased common stock cash dividend from $.04 per share quarterly to $.05 per share quarterly.
• Successful launching of our asset based lending subsidiary, Mackinac Commercial Credit, LLC late in 2013 located in Birmingham, MI.
Total loans at 2013 year-end, totaled $483.832 million, an increase of 7.7 percent, from the $449.177 million at 2012 year-end. The corporation had total loan production for all loan types of $191 million in 2013. Production included $88 million in commercial loans, and $103 million in consumer loans, $95 million of which were mortgages. The Upper Peninsula continues to drive a large majority of the new originations, with $125 million, followed by our Northern Lower Region with $48 million and Southeast Michigan Region at $18 million.
Commenting on new loan opportunities, Kelly W. George, President and Chief Executive Officer of mBank, stated, “We were extremely pleased with our success in loan production for 2013 and the growth of good quality assets to our balance sheet as we were able to achieve this in a still very challenging interest rate environment and state economy where the procurement of new loans for all banks has led to a highly competitive lending environment. As was the case with most banks, our mortgage pipeline decreased in the latter half of the year with the increasing mortgage rates which slowed refinance business but we are still seeing a good deal of new home purchases and are optimistic that mortgage lending will rebound some in the new year. The government shutdown in the early part of the fourth quarter also stymied our momentum of SBA loan transactions being adjudicated for the end of the year, which results in a strong pipeline to start 2014. In addition to the $484 million in balance sheet loans, $59 million of SBA/USDA loans and $133 million of secondary market mortgage loans were sold with retained servicing. This increases our loans under management to $676 million.”
The corporation’s production totaled $56.0 million in secondary market mortgage loans in 2013 compared to $74.1 million in 2012. Gains and fees from secondary mortgage activity totaled $1.028 million in 2013 compared to $1.390 million in 2012. In addition, the corporation also received $.299 million in fees on its secondary market servicing portfolio which totaled $133 million at 2013 year end.
The corporation continues to have success in this line of business as in years past with 2013 gains from sales of SBA/USDA guaranteed loan balances amounting to $.951 million compared to $1.176 million in 2012. The guaranteed SBA/ USDA loan balances sold totaled $8.393 million for 2013, compared to $11.962 million in 2012. The Bank also services approximately $59 million of SBA/USDA loans which generated an additional $.402 million in fees during 2013. The corporation remains a state leader in the origination of these government lending programs which the bank recognizes are critical for many small businesses to obtain the capital they need to grow or improve their operations throughout the state.
Nonperforming loans totaled $2.024 million, .42 percent of total loans at Dec. 31, 2013, compared to $4.687 million, or 1.04 percent of total loans at Dec. 31, 2012. Nonperforming assets were reduced by $3.991 million from a year ago and stood at $3.908 million, or .68 percent of total assets.
George, commenting on credit quality, stated, “We have been diligent and aggressive in resolving our problem credit relationships and in our overall new loan approval process which is illustrated with the strong underlying credit metrics of our current portfolio encompassing low manageable levels of nonperforming assets and loan delinquencies residing at a nominal .38 percent of total loans.”
Total deposits of $466.299 million at 2013 year-end increased 7.30 percent from deposits of $434.557 million at 2012 year-end. The overall increase in deposits for 2013 is comprised of an increase in core deposits of $3.097 million and increased noncore deposits of $28.645 million.
George, commenting on core deposits, stated, “In 2013, we were proactive with rate reductions on deposit products to maximize margin dollars which led to some balance reductions from strictly price driven time deposit customers. The bank saw increased levels of transactional deposits as we pushed to increase deposit share with our high value relationship clients. We also experienced some larger withdrawals from commercial clients that used their excess liquidity to fund business expansion or pay down debt. We augmented our funding sources this year as well with some nominal and manageable levels of brokered and internet deposits, primarily to extend the maturities of some of our liabilities to support fixed rate lending structures to better mitigate any long term interest rate risk.”
Net interest income in 2013 increased to $21.399 million, compared to $ 19.824 million in 2012. The net interest margin was 4.17 percent for both years.
George, commenting on the margin, stated, “We expect continued margin pressure from a national economic policy that fosters a low interest rate environment but remain positive of our ability to prudently manage the balance sheet to mitigate the downward pressure and maintain an above peer and strong net interest margin. In addition, this low interest rate environment has severely limited many investment options which in turns puts more pressure on our loan portfolio yields and the maintaining of good loan pricing and interest rate floors where applicable.”
Noninterest expense, at $18.128 million in 2013, increased $1.371 million, or 8.18 percent, from 2012 levels. This increase was higher than normal due to several initiatives undertaken during the year including start-up costs for their asset based lending subsidiary of approximately $.671 million, the write down of the old mortgage loan office, of $.270 million, in their Marquette market as they moved to the new leased facility, and other costs incurred in the exploration of a possible acquisition which totaled approximately $.162 million.
George, commenting on the areas of increased expenses stated, “We remain diligent in our efforts to manage our operating expenses in the ongoing evaluation of our personnel infrastructure and banking lines of business to improve future efficiencies, keep pace with ongoing regulatory requirements, and in providing avenues for increased business growth we ascertain will enhance overall franchise value in the long run.”
At 2013 year-end the corporation completed the redemption of its outstanding preferred stock. The preferred shares were originally issued to the US Treasury under the TARP Capital Purchase Program and were subsequently sold to private investors. Total shareholders’ equity at Dec. 31, 2013, totaled $65.429 million, compared to $72.448 million at 2012 year-end. Book value of common shareholders’ equity was $11.77 per share at Dec. 31, 2013, compared to $11.05 per share at Dec. 31, 2012.
Paul D. Tobias, Chairman and Chief Executive Officer, concluded, “We delivered a solid performance in 2013 in what is proving to be an extremely challenging environment for community banking. Looking forward, we believe that there will be some consolidation in the banking industry as companies, like MFNC, look for growth in order to achieve enhanced shareholder value with increased economies of scale.”
“Our capital strength and our earnings momentum provided the impetus for both the redemption of our preferred stock and the increase in our cash dividend from $.16 per share to $.20 per share, annually. We were also able to recognize deferred tax benefits given the current level of sustained profitability of our company.
In 2014 we will explore more opportunities for creating added shareholder value including expansion within our current markets, acquisitions that complement our current footprint and through the growth of our new asset based lending and factoring subsidiary Mackinac Commercial Credit. We have a management team and infrastructure that we can leverage for increased returns to our shareholders. We will be patient in evaluating and executing our growth strategy while continuing with the day to day execution of organic growth and increased operational efficiencies.”
Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets of $573 million and whose common stock is traded on the NASDAQ stock market as “MFNC.” The principal subsidiary of the Corporation is mBank. Headquartered in Manistique, Mich., mBank has 11 branch locations; seven in the Upper Peninsula, three in the Northern Lower Peninsula and one in Oakland County, Michigan. The Corporation’s banking services include commercial lending and treasury management products and services geared toward small to mid-sized businesses, as well as a full array of personal and business deposit products and consumer loans.